1 Economic methodology and the economic problem

Question 1

economic methodology involves the application of tested…

Answer 1

…economic theories to explain real-world economic behaviour

Question 2

what is a POSITIVE statement?

Answer 2

a statement of fact that can be scientifically tested to see if its correct or incorrect.

Question 3

what is a NORMATIVE statement?

Answer 3

a statement of that includes a VALUE JUDGEMENT, which cannot be proven true or false purely by looking at the evidence

Question 4

what is a VALUE JUDGEMENT?

Answer 4

about whether something is desirable or not.

Question 5

who uses value based judgements when deciding on economic policies?

Answer 5

government ministers
eg. prime minister (rishi sunak), finance ministers.

Question 6

what is economic welfare?

Answer 6

human happiness, the economic well-being of an individual, a group or an economy.
based on the extent of an individuals consumption of their wants and needs.

Question 7

what boosts economic welfare?

Answer 7

satisfying peoples wants and needs
- consumption of more material goods and services

HOWEVER in the long term:
- consuming too much can reduce economic welfare - eg. food - leads to obesity.

Question 8

human welfare also depends on…

Answer 8

quality of life factors.
- eg. quality of relationships with friends and family

Question 9

the 2 mechanisms by which economic systems are defined by are…

Answer 9

• the MARKET mechanism (price mechanism)
• the COMMAND mechanism (planning mechanism)

Question 10

an economic system where goods and services are purchased through the price mechanism in a system of markets is called…

Answer 10

a market economy

Question 11

an economic system where where government officials allocate economic resources to firms is called…

Answer 11

a command economy (planned economy)

Question 12

a mixture of different types of economic system, containing both a large market sector and a large non-market sector in which the planning mechanism operates.

Answer 12

a mixed economy

Question 13

what type of economy is the UK?

Answer 13

seen as mixed:

• both market and non-market sectors
• both privately owned and publicly owned sectors.

Question 14

what is the price mechanism?

Answer 14

performs the central economic task of allocating scarce resources among competing uses through markets which make up the economy

Question 15

what is production?

Answer 15

a process/ set of processes that converts inputs into outputs

Question 16

what are the 4 factors of production?

Answer 16

land
labour
capital
enterprise

Question 17

list environmental resources used in the economic system…

Answer 17

physical resources = soil, water, forests, fisheries

gases = hydrogen, oxygen

abstract resources = solar energy, wind energy

Question 18

what is the definition of renewable resources?

Answer 18

maintainable resources that can be replenished/ reproduced when used. eg Timber

Question 19

what is the definition of non-renewable resources?

Answer 19

cannot be regenerated, or regeneration so slow that the stock of resources cannot be increased.
eg. oil and gas

aka. FINITE resources

Question 20

what is the definition of recyclable non-renewable resources?

Answer 20

can be reused in the economic system.

eg. glass, paper

Question 21

what is the definition of non-recyclable resources?

Answer 21

finite, once used, stock is no longer available for future use

eg. coal, oil

Question 22

explain the enterprise factor of production

Answer 22

the entrepreneur is the factor of production that decides what to produce, how to produce and who to produce for.

Question 23

the fundamental economic problem is the problem of…

Answer 23

…SCARCITY

Question 24

the fundamental economic problem is

Answer 24

how best to make decisions about the allocation of scarce resources among competing uses to improve and maximise human happiness and welfare

it results from scarcity of resources

Question 25

scarcity results from

Answer 25

the fact that people have unlimited wants and needs but limited resources.

Question 26

choice

Answer 26

choosing between alternatives when making a decision on how to use scarce resources

Question 27

opportunity cost

Answer 27

the cost of making a choice and therefore giving up the next best alternative

Question 28

economists verbally assume people are rational/irrational choosing the best alternative available

Answer 28

rational

Question 29

production possibility frontier definition

Answer 29

a curve depicting the various combinations of two products that can be produced when all available resources are fully and efficiently employed

Question 30

technical progress definition

Answer 30

new and better ways of making goods and new techniques for producing more output from scarce resources